To address this need, technology suppliers like Finxact are creating new core banking systems designed to help less digitally-advanced organisations realise the cost and development rewards of technology-driven operations.

Yet with all this money swirling around the industry, there are inevitable questions about whether it is being spent well, or just as a knee-jerk reaction to the advance of fintech disruption.

Finxact boss Frank Sanchez has seen a change in attitudes towards digital transformation in financial services

Finxact CEO Frank Sanchez has forged a career in creating systems used by banks, having built a real-time core banking system in the 1990s, which attracted the business of Citibank, ING and American Express before being sold to Fidelity National Information Services (FIS) for $184m in 2004.

Sanchez later went to work for FIS, one of the biggest banking technology providers in the world, where he witnessed the changing appetite for digital transformation among financial services firms.

“When I left FIS in 2009 there was recognition across the market – particularly among the large banks – that new platforms were required,” he explains.

“But there was a resistance among CTOs and COOs for it to happen on their watch – there was an attitude of ‘the next guy can do it’.

Frank Sanchez, CEO Finxact (Credit: Finxact)

“As a vendor at the time, that was concerning to me because sometimes I felt like the banks weren’t working in the interests of their shareholders – or were focusing too much on the technical risk of change rather than the existential risk of not changing and not being competitive.”

What he has seen since talking to banks about his new project with Finxact, however, has left him “very surprised – almost shocked” about the broad level of interest and commitment to implementing change.

Sanchez adds: “With almost every institution we talk to now, there’s acknowledgment that they have to do something – institutions just have to figure out the right journey for them.”

This “component-based model” to building a financial technology infrastructure allows individual organisations to create their own “bespoke” systems, based on the specific requirements of their business.

Following an 18-month period of product development, Finxact has now started selling its product in the US – starting out with regional community banks such as Live Oak Bank and Woodforest, and is in conversation with some of the bigger players on the national scene.

Sanchez also identifies a “critical point” that has been reached by the technology being run by some of these banks, which is in some cases 50 years old and no longer has the support it needs to be sustainable.

“N26 is clearly getting a return on its investment, as is the Marcus bank at Goldman Sachs because they went into new customer segments, new territories and new capabilities.

N26 is a German digital-only challenger bank (Credit: N26)

“If you’re investing to reach a customer base or a revenue base that was not available to you before then the return on investment can be relatively fast.”

The case for technology investment among the new breed of challenger banks which have “a clean slate and a clear vision of how to implement technology and acquire customers” is easy to make, but for legacy banks with millions of existing customers and a brand to protect, the picture is less straight forward.

Sanchez adds: “The return on replacing legacy cores with existing distribution and branches and millions of customers is very much tied to the individual cost base of a bank.

“We believe we represent a minimum 50% cost reduction in operating the back office – so if a bank is spending hundreds of millions of dollars annually on its technology platform, there’s a substantial gain there.

“Also the ability to innovate on the new platforms is substantially better – the cost to innovate and be creative is substantially reduced on these new stacks.”

Do you have interesting content to share with us?Enter your email address so we can get in touch.